Ohio governor calls GOP debate on budget 'healthy'

COLUMBUS, Ohio (AP) -- The Republican governor brushed off suggestions Wednesday that policies in his two-year state budget proposal are splintering his Party.

Gov. John Kasich told reporters at an Ohio Newspaper Association reception that he's OK with discussions around his plans to broaden the state sales tax and expand the Medicaid program.

"I don't see any fracturing," Kasich said. "What I see is a nice, honest, healthy debate over big ideas. And big ideas always have controversy connected to them."

The state treasurer, Josh Mandel, on Monday encouraged his fellow Republicans in the Legislature to reject the expansion, warning that the state would be stuck with its long-term effects.

The governor has framed the expansion as recapturing Ohio residents' tax dollars from the federal government, but Mandel said he doesn't see it that way.

"There is no free money," he wrote to House Speaker William Batchelder and Senate President Keith Faber. "While expanding Medicaid may direct more federal dollars to Ohio in the next few years, in the long term Ohioans will have to repay the debt that is funding federal government spending."

Under the federal health care overhaul, Washington, D.C., will pay the entire cost of the expansion for the first three years, gradually phasing down to 90 percent, still well above the state's current level of 64 percent.

Many Republicans are averse to Democratic President Barack Obama's signature health care law and are resistant to expanding government programs.

Kasich last summer called the overhaul a "massive new tax on the middle class" but last week said the Medicaid expansion makes sense for Ohio. He said Wednesday he didn't make much of Mandel's letter.

"It's a complicated issue," he said. "It took us months to really unravel all of it. And you know, I made a decision. And I don't worry about people chirping about it. It's just part of the process."

Kasich's budget also incorporates a significant rewrite of Ohio's tax code that delivers $1.4 billion in tax cuts over three years. It would reduce the tax rate on virtually all small businesses by 50 percent, cut the income tax rate statewide by 20 percent over three years and lower the sales tax rate from 5.5 percent to 5 percent

But the revisions also would impose sales taxes on professional services -- including lawyers, lobbyists and accountants -- which could see pushback from Republicans who control the Legislature.

"It isn't like we haven't taxed services before," Kasich said. "We have. We just taxed them when frankly they were weak and didn't have anybody to defend them in the Legislature."

The governor said he expected special interests would be ready to protect the sales tax from being applied to certain areas.